Sep 6, 2025
Earlier this year, the Trump administration ended programs that gave a break to people who had fallen behind on their student loans. Now, those borrowers have to start paying again — and the government can take money directly from paychecks, tax refunds, or Social Security checks to collect what’s owed.
These changes don’t just impact a small minority. As of July, 5.8 million Americans of all ages could be in technical default, according to TransUnion [1]. That’s one in every three people who have outstanding federal student loans.
Advertisement
If you’ve ever attended college, there’s a significant chance this impacts you. Here’s what you need to know.
Who’s at risk of garnishment
Not every student loan borrower is at risk. This only applies to people with federal student loans who are already in default. Private student loans fall under different rules, and lenders must go through the courts to garnish wages.
Default happens after you miss payments for a long period, typically 270 days or more. At that point, the entire loan balance becomes due, and the Department of Education can use “administrative wage garnishment” to collect directly from your paycheck. According to TransUnion, about 5.8 million Americans are already in technical default, which is roughly one in three federal borrowers.
So if you have federal loans and have stopped paying, you’re in the group that could see your wages, tax refunds, or Social Security checks tapped to repay your debt.
Must Read
- Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — are you doing the same?
- Thanks to Jeff Bezos, you can now become a landlord for as little as $100 — and no, you don't have to deal with tenants or fix freezers. Here's how
- Robert Kiyosaki says this 1 asset will surge 400% in a year and begs investors not to miss this ‘explosion’
Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
A looming default crisis
The federal student loan program has been a political hot topic for years. The government introduced a temporary pause on repayments for borrowers during the 2020 pandemic [2] and the Biden administration's efforts to forgive loans delayed collections further.
However, the Trump administration is eager to resume repayments. “There will not be any mass loan forgiveness,” the Department of Education said in a statement [3] published in April, explaining that collections are resuming from May 5th.
Borrowers are already struggling with repayment hurdles — from confusing loan servicer communications to uncertainty around income-driven repayment plans — and that raises the risk of more people slipping into delinquency and eventually default, Joshua Trumbull, senior vice president and head of consumer lending at TransUnion, told CNBC [4].
Meanwhile, a study by the Pew Charitable Trusts warned of “a coming wave of further student loan defaults — which put borrower financial stability and taxpayer investments at risk" [5].
Advertisement
Those who default could see their credit score drop by 60 points on average, according to TransUnion [6]. Meanwhile, U.S. Secretary of Education Linda McMahon wrote in a Wall Street Journal op-ed that “in some cases [borrowers could see] their wages automatically garnished" [7].
Those facing delinquency will receive a 30-day notice before Federal Student Aid (FSA) withholds a portion of their paycheck, according to CNBC [8]. If you receive this notice, it’s important to act quickly to safeguard your paycheck.
How to prevent wage garnishment
According to the FSA, borrowers who receive a notice have three options to prevent wage garnishment. The first option is to repay the outstanding balance in full or negotiate a settlement. Another option is to reach out to the agency and propose repayment terms that it deems acceptable. Finally, you could also request a hearing to challenge the garnishment.
All three options must be implemented within the 30-day notice period.
If your wages are already being garnished by the agency, you can either request a hearing to challenge it or enter into a “rehabilitation agreement” to try to halt the process and negotiate a way out.
A financial expert could help you decide if one of these strategies might minimize the damage to your personal finances and credit score.
Advertisement
Wage garnishment isn’t inevitable, but you have to act quickly once you’re in default. For borrowers struggling with next steps, working with a financial advisor or nonprofit credit counselor can provide a plan to get back on track and protect your financial stability.
Article sources
At Moneywise, we consider it our responsibility to produce accurate and trustworthy content people can rely on to inform their financial decisions. We rely on vetted sources such as government data, financial records and expert interviews and highlight credible third-party reporting when appropriate.
We are committed to transparency and accountability, correcting errors openly and adhering to the best practices of the journalism industry. For more details, see our editorial ethics and guidelines.
[1]. TransUnion. "Following the Resumption of Federal Collection Activities in May, Nearly One in Three Federal Student Loan Borrowers Find Themselves at Risk for Default"
[2]. Yahoo Finance. "The Trump administration has begun garnishing wages of student loan borrowers in default. These are the benefits businesses can offer employees to help with their debt"
[3]. U.S. Department of Education. "U.S. Department of Education to Begin Federal Student Loan Collections, Other Actions to Help Borrowers Get Back into Repayment"
Advertisement
[4]. CNBC. "Student loan borrowers face ‘default cliff’ as late payments climb, report finds"
[5]. Pew Charitable Trusts. "Accelerating Student Loan Defaults Put Borrowers and Taxpayers at Risk"
[6]. TransUnion. "Following the Resumption of Federal Collection Activities in May, Nearly One in Three Federal Student Loan Borrowers Find Themselves at Risk for Default"
[7]. WSJ. "Linda McMahon: Accountability Returns to Student Loans"
[8]. CNBC. "Student loan borrowers face ‘default cliff’ as late payments climb, report finds"
[9]. FSA. "How do I stop my wages from being garnished?"
You May Also Like
- Turning 50 with $0 saved for retirement? Most people don’t realize they’re actually just entering their prime earning decade. Here are 6 ways to catch up fast
- Inside a $1B real estate fund offering access to thousands of income-producing rental properties — with flexible minimums starting at $10
- Vanguard’s outlook on U.S. stocks is raising alarm bells for retirees. Here’s why and how to protect yourself
- Here are 5 easy ways to own multiple properties like Bezos and Beyoncé. You can start with $10 (and no, you don’t have to manage a single thing)
Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
